Substituição tributária is a tax collection mechanism created with the intention to avoid double taxation and tax evasion during the production of goods and provision of services in Brazil. Know more about this system in this article.
What is Substituição Tributária?
Substituição Tributária (Tax Substitution) is a tax collection mechanism used by federal and state governments in Brazil, in order to facilitate the enforcement of taxes that are levied several times during the production of a specific good or the provision of determined services. The system exists to avoid taxes from being charged more than one time during the process of production and to prevent taxpayers from practicing tax evasion.
Also known by the acronym ST, Tax Substitution assigns responsibility to the taxpayer to pay the tax owed by his client. The replacement will be collected by the taxpayer and subsequently transferred to the government. This procedure is mainly used for the collection of ICMS (being known as ICMS/ST), although it is also foreseen in the regulation of another Brazilian taxes, such as IPI. The incidence of tax substitution is defined depending on the product or service in question and responsibility takes place in relation to goods or services provided by the law of each state.
The ICMS Tax Substitution was implemented because it was found that few manufacturers sell their products to thousands of distributors and resellers, and these last used to evade ICMS.
The transaction of ST involves two types of taxpayers:
Contribuinte Substituto (Substitute taxpayer): is responsible for the retention and payment of the tax in installments or operations background. As a general rule will be the manufacturer or importer with regard to subsequent operations.
Contribuinte Substituído (Substituted taxpayer): has the tax due on the operations and services paid by the substitute taxpayer.
Types of Substituição Tributária
There are three types of substituição tributária, as follows:
Substituição tributária antecedente: where, tied to events that occurred before, the law chooses the time and responsible for collecting the tax from taxpayers involved in the previous steps, the purchaser or recipient of the product, as is the case of deferral, which has set the close of the command and the taxpayer responsible for gathering exaction. The ST in relation to subsequent operations is characterized by the assignment of a particular taxpayer (usually the first in the marketing chain, the manufacturer or importer) to pay the value of ICMS due in subsequent operations with the goods until his departure meant the consumer or end user.
Substituição tributária concomitante: determines the need for the instant payment as the triggering event occurs. This kind of substitution regime is characterized by the allocation of liability for payment of tax to another taxpayer, and not one who is performing the operation or provision of service, concomitantly with the occurrence of a triggering event. This species is the Tax Substitution of cargo transportation services.
Substituição tributária subsequente: futures tied to events (also called tax replacement forward), applying to cases relating to our regulation (beer, mineral water, cigarettes, ice cream, new vehicles, tires, cement, etc.). Fixing margins profit and those responsible for this obligation. This is the best known type.
Assuming, for example, a commodity with a value of BRL 1.00, which was originated in the state of Rio de Janeiro, and is to be sold in the state of São Paulo. If this operation covers substitutição tributária for the ICMS tax, the government will provide for an agenda (normally a presumed resale value, for example, BRL 2.00). Assuming that under the interstate operation between SP and RJ relates a rate of ICMS of 12%, and on operations in intrastate SP relates a rate of 18%, total ICMS will be calculated as follows:
In our example, the numbers would be as follows:
Total ICMS-Normal = (BRL 1.00 x 12%) = 0.12 Total-ICMS Substitution = (BRL 2.00 x 18%) = 0.36
As the ICMS is calculated as a debit and credit, the amount collected would look like:
0.36 - (0.12) = BRL 0.24